U.S. Allows ZTE to Resume Some Business Activity Temporarily

(Bloomberg) -- The Trump administration is letting ZTE Corp. resume some business activities while the U.S. weighs ending a seven-year ban on the Chinese telecommunications company, according to a document obtained by Bloomberg News.

The ZTE authorization by the Commerce Department's Bureau of Industry and Security is valid from July 2 until Aug. 1. While it wasn't immediately clear when a permanent order will follow, a person familiar with the matter said ZTE is expected to be in compliance with U.S. demands by Aug. 1.

ZTE's stock surged its 10 percent daily limit in Shenzhen on Tuesday, the biggest jump in more than a year. Its shares in Hong Kong rose 7.6 percent.

The authorization permits China's No. 2 maker of telecoms gear to support existing networks or equipment under contracts signed on or before April 15, when the U.S. blocked companies from selling components to ZTE for violating sanctions against Iran and North Korea. The ban had forced ZTE to announce it was shutting down.

President Donald Trump reversed course in May, saying he was reconsidering penalties on ZTE as personal favor to Chinese President Xi Jinping. Later that month, the Trump administration announced it would allow the company to stay in business after paying a $1.3 billion fine, changing its management and providing “high-level security guarantees.”

The about-face sparked concerns of ZTE being used as a bargaining chip in U.S.-China trade negotiations to avert a tariffs dispute. Those talks have stalled and the U.S. is set to impose tariffs on $34 billion of Chinese goods Friday, and another $16 billion may follow. China has said it will retaliate dollar-for-dollar on U.S. imports.

ZTE took a major step forward in meeting the White House's conditions by sacking its entire board and appointing a new chairman last week. A U.S. Commerce official said on June 22 that ZTE was close to clearing the final hurdle, by paying $400 million in escrow.

ZTE's new management now faces the challenge of rebuilding trust with phone companies and corporate customers. The company is said to be facing at least $3 billion in total losses from the months-long moratorium, which cut off the flow of chips and other components it needed to make its networking gear and smartphones.

In Washington, a bipartisan group of lawmakers remains concerned about ZTE's threat to U.S. national security and is pushing for legislation aimed at restoring harsher penalties. Lawmakers are set to resume negotiations on legislation that will try to balance concerns that ZTE presents a security risk with efforts to get the company back into business.

This week's authorization lets ZTE give support, including software updates, for ZTE phone models that were available to the public on or before April 15, and it allows parties to make and receive payments for permissible ZTE transactions. The order also authorizes “the disclosure to ZTE of information regarding security vulnerabilities in items owned, possessed or controlled by ZTE” to protect communication networks and equipment, it said.

--With assistance from Andrew Mayeda, Edwin Chan and Steven Yang.

To contact the reporter on this story: Jenny Leonard in Washington at jleonard67@bloomberg.net

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Sarah McGregor

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